What is a limited company in the UK?

A UK limited company is a distinct legal entity from its owners, providing them with protection against limited liability. This means that the owners, also known as shareholders or guarantors, are only liable for the company's debts to the extent they have invested or guaranteed. A limited company must be established and registered with Companies House, which gives it a separate legal personality to make contracts, hold property, and be sued in its own name independently of its owners.

There are various types of limited companies in the UK. There is a Private Limited Company (Ltd), whose shareholders are not the public but are private owners. There is also a Public Limited Company (PLC), which offers shares to the public and must have at least £50,000 in share capital. There is also a company limited by guarantee, which is used more frequently in not-for-profit arrangements, where the guarantors become members as opposed to shareholders. Another type, the Limited Liability Partnership (LLP), offers limited liability and yet operates more like a regular partnership.

One of the primary advantages of a limited company is that it will safeguard its proprietors, such as shielding private assets from the debts of the company. A limited company could be more tax effective since it can pay Corporation Tax on profit in place of paying income tax. Being a limited company can even enhance credibility and bring more customers or investors. There are, nonetheless, certain disadvantages, such as increased regulatory burdens, e.g., preparing annual accounts, a confirmation statement and tax returns to Companies House and HMRC. There will also be costs of incorporation and compliance to meet.

Generally speaking, a UK limited company provides a well-structured and professional form of business that is weighed against liability protection, tax efficiency, and credibility and is therefore preferred by the majority of businesses and entrepreneurs.